IMF: Economic growth in Belize over five per cent
BELMOPAN, Belize – The International Monetary Fund (IMF) says Belize economic recovery is strengthening with economic growth in the second quarter of this year estimated at 5.4 per cent.
An IMF delegation has just ended a two week visit to the Caribbean Community (CARICOM) country, indicating that real gross domestic growth (GDP) grew by 1.4 per cent last year.
The IMF delegation headed by Daniel Leigh, the Deputy Division Chief at the Research Department of the Washington-based financial institution, noted that the country’s economic recovery is strengthening, supported by a favourable global environment.
The IMF said that the medium-term outlook remains challenging and that real GDP growth is projected at 2.2 per cent in 2018 and just below two per cent in the medium term, in line with recent trends.
It said the current account deficit is projected to gradually narrow, but remain significant, reflecting structural weaknesses, with international reserves projected below three months of imports of goods and services over the medium term.
A fiscal stance that is stronger than projected in the baseline scenario, which assumes no fiscal adjustment beyond financial year 2018-19, would be needed to reduce public debt from its end-2017 level to prudent levels over the medium to long term and build buffers against shocks, the IMF said.
The Washington-based financial institution said that downside risks remain substantial.
“Contested legacy claims, estimated at about five per cent of GDP, could lead to large public and external financing needs. Reputational risks from potential financial misuse of the offshore sector’s complex entities, and governance concerns, could weaken investor confidence and renew pressures on CBRs, (Corresponding Banking Relationships) which would weaken banks.”
The IMF said that these vulnerabilities would be exacerbated by a growth slowdown among Belize’s main trading partners, higher international energy prices, and increasingly severe natural disasters associated with climate change.
“Such adverse developments could undermine public support for the government’s reforms and endanger debt sustainability. On the upside, additional foreign direct investment, including in connection with the tourism industry’s expansion, and a successful implementation of the Growth and Sustainable Development Strategy (GSDS) could result in a sustained rise in growth.”
The IMF said that policies to enhance Belize’s growth and resilience are essential for addressing these challenges and risks and for improving the economic wellbeing of all Belizeans.
It said that improving the business climate remains a central priority. Belize’s outlook of rising growth, especially in the agriculture, call-centre, and tourism sectors, provides an opportunity to make progress on policies that will strengthen the recovery in the short term and raise long-term growth, without significant fiscal costs.
Structural reform priorities include easing access to credit by establishing a Credit Bureau and collateral registry; accelerating and modernizing procedures for starting a business; amending labour legislation to allow greater flexibility in working hours and increasing support for technical training among other measures the IMF noted.
It said intensifying Belize’s ongoing efforts to build resilience to climate change and natural disasters would reduce economic volatility and raise growth over the medium term.
To support the authorities’ poverty alleviation strategy, the IMF is recommending that reforms to Belize’s social safety net are warranted.
“Belize already has a number of social safety net programmes, such as the High School Subsidy Programme, Building Opportunities for Our Social Transformation (BOOST), Food Pantry, and the Conditional Cash Transfer (CCT) Programme. Increasing the use of formal targeting mechanisms, informed by an updated country poverty assessment, would increase the programmes’ effectiveness at reaching the most vulnerable individuals, an important consideration given the distributional implications of fiscal and structural reforms.”
Regarding the country’s economic performance, the IMF said that tourism arrivals were up 17.1 per cent in January–June 2018 compared with a year earlier, reflecting economic expansion in Belize’s trade partners and an increased number of flights. The unemployment rate declined to 9.4 per cent in April 2018 from 9.7 per cent six months earlier, while inflation was below one per cent.
The IMF said that the current account deficit narrowed to 7.6 per cent of GDP in 2017 from 8.4 per cent of GDP in 2016, reflecting subdued imports and higher receipts from tourism.
The IMF said that the government delivered a significant fiscal adjustment in the financial year 2017-18, noting that the primary balance increased to a surplus of 1.3 per cent of GDP during the year, excluding a one-off effect of a Caribbean Court of Justice (CCJ) ruling, implying a 3.2 per cent of GDP turnaround from the financial year 2016-17 level.
But the adjustment occurred largely through a reduction of government investment, which affected growth. Tax measures raised revenues, although their yield was lower than anticipated.
The IMF said that the 2018-19 national budget raises the primary fiscal surplus further, to just above two per cent of GDP.
“The planned adjustment is mainly through higher revenues. Measures include broadening the base of the General Sales Tax (GST) by removing zero-rated items, higher excises on fuel, and higher import duties on selected items, supported by stronger tax administration and spending restraint,” the IMF said.
It said that the financial sector is strengthening, supported by the authorities’ resolute actions to enhance financial soundness and reduce risks to CBRs.
“All banks affected by the loss of CBRs during 2015-16 have found some replacement CBRs and alternative ways of processing cross border transactions,” the IMF said, adding that the Central Bank of Belize (CBB) took resolute action to deal with a troubled offshore bank.
It said the CBB also conducted AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) supervision of one domestic bank, three offshore banks, and two credit unions in 2018.
The IMF said the financial system should remain under tight supervision.
“Regulations on provisioning should be strengthened, taking into consideration the types of lending and minimum operational requirements for collateral. An asset quality review would help assess banks’ capital buffers.
“The bank resolution legal framework should be fortified, including with more effective tools that the CBB could deploy at an early juncture, with greater operational autonomy. CBB financing of government spending should be phased out to prevent risks of exchange rate and inflation pressure and be replaced by more regular government debt auctions,” the IMF added. (CMC)